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Cross-border shoppers cost B.C. economy billions each year: study

Overnight trips have more than tripled since duty-free limits were increased in June 2012

Traffic heading into the U.S. at the Peace Arch border crossing is backed up for more than two hours on Labour Day weekend in Surrey on September 1, 2012.

Photograph by: Les Bazso
, PNG

Cross-border shopping cost British Columbia’s retail sector as much as $2.6 billion in the last year, according to a new report from the Business Council of British Columbia.

Based on spending estimates for Canadian shoppers and travel data from Statistics Canada, same-day and overnight trips across the border leached between $1 billion and $1.6 billion from B.C.’s retail economy in 2012, the report concludes.

Add in spending on longer-term trips — those over 48 hours — and that figure increases to $2.6 billion.

Ken Peacock, chief economist at the Business Council of B.C., began investigating the economic impact of cross-border shopping after noticing retail sales numbers appeared out of step with economic conditions within the province and the national average.

“The growth of retail spending has been fairly sluggish in B.C.,” said Peacock, noting per capita retail sales in B.C. began dipping below the national benchmark in 2009, the year the Canadian dollar approached parity with the U.S.

While B.C. is contending with a tepid economy and a softening housing market, that alone did not seem to account for the weak showing. Numbers from 2012 showed the province’s retail sector made only modest gains, growing by 1.9 per cent and lagging behind the national benchmark of 2.5 per cent.

“The data just seemed a little too slow.”

Meanwhile, anecdotal evidence supported a marked increase in cross-border shopping, with B.C. residents flocking across the border in search of better deals on consumer goods such as gas, grocery items and clothing.

Peacock ran the numbers and found same-day trips to the U.S. increased by more than 143 per cent in B.C. between 2009 and 2012, jumping to 5.7 million from 2.3 million. That alone accounts for a surge in cross-border spending to $855 million annually in 2012 from $345 million in 2009.

Monthly overnight trips to the U.S. have also skyrocketed to 70,000 from 20,000 since June 2012, when duty-free limits were lifted to $200 from $50 for a 24-hour duration.

Assuming 95-per-cent of day-trippers return with a full tank of gas, at an average of $70, and $80 worth of goods, and each overnight sojourner spends their $200 duty-free allotment, the low-end impact to B.C.’s economy totals $1 billion. And that’s likely a conservative estimate, said Peacock.

Bump up same-day spending to $150 and overnighters into the $300 range, and the impact grows to $1.6 billion.

If spent within B.C., that amount of money would have boosted the province’s retail sales growth by nearly a full percentage point, overtaking the national benchmark and keeping with historical trends.

The motivation for cross-border shopping is obvious, given the huge savings available.

Peacock compared prices on 19 commonly found household items such as crackers, batteries and cereal, and found double-digit price differentials on 16 of them. The highest price disparity was on diary and eggs, with average milk prices nearly 42-per-cent lower in the U.S., butter retailing for 17-per-cent less and eggs nearly 38-per-cent less. The biggest difference, however, was on cheese, where American prices were nearly 60 per cent below those of Canadian retailers.

British Columbians are also more inclined to cross the border compared with other Canadians, the report said. In 2012, British Columbians made twice as many same-day border crossings per 100 persons than Ontarians, and nearly 50 times more than Albertans.

Despite the price disparity and apparent economic impact, Peacock said he doesn’t support increased restrictions to cross-border shopping.

“We wouldn’t want to see any sort of restrictions on border crossings, or anything like that,” he said. “That would be draconian.”

Rather, he said, B.C. needs to keep business costs down to compete with American counterparts, while price differentials on major items such as gas and dairy could be addressed through reforms to TransLink’s fuel levy and “supply-management schemes that push up the price on dairy and poultry products in Canada.”

He noted money saved by cross-border shoppers may even stimulate B.C.’s economy by freeing up household budgets.

“If they can manage to save a couple hundred dollars a month, or even a week, then they will spend that money in other areas. Often, from an economic sense, it’s a reallocation of a consumer’s expenditure.”

That’s little comfort to cheesemonger Mauricio Kremer, who has seen a 10 per cent decline in sales in the last year at his Surrey-based specialty shop Keso Cheese.

While customer service and product knowledge can compensate for price differentials of 10 or 20 per cent, Kremer said he simply can’t compete with differences of nearly 60 per cent and the high Canadian dollar.

“At 60 per cent, people are going to go across the border. I hear every day people come into buy cheese but they buy the bulk of their product in the United States.”

Kremer said he’s noticed a decline in business over the last four years, but particularly within the last 12 months as the Canadian dollar has remained consistently near parity. He has even had to lay off one staff member. Sales are still strong for specialty cheeses, but for “everyday” cheese like cheddar and Gouda, consumers are lured by cheaper prices south of the border.

Complicating matters, consumer limits on items such as dairy are not enforced at the border, Kremer said, adding he once brought $50 worth of cheese across as a test. Border restrictions limit American dairy purchases to $20.

“So what do you do? I lower the price of my everyday cheese to where I’m practically making no money,” he said.

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